The online retailer Ikea launches an aggressive price reduction to lower furniture costs again after a successful start to the autumn and winter season 2024. Last year, the company invested more than 2 billion euros to reduce the prices of its most popular products by an average of around 10%. This measure led to the first revenue decline since 2020, even though Ikea sold more goods.
We focused entirely on affordability this year," explained Jesper Brodin, CEO of the parent company Ingka, to the Financial Times. "For us, it's not a celebration when prices increase, but when we can lower them to make them accessible to more people." Despite the price reductions, Ikea's revenue fell by 5.3% to 45 billion euros for the year ending in August. This decline occurred despite an increase in gross merchandise volume (GMV) of three to five percent to 15.1 to 15.4 billion euros and sales growth of two to five percent to 10.3 to 10.7 billion euros for 2024.
The decline in sales is attributed to the increased costs for transport and raw materials during the COVID-19 pandemic, which led Ikea to raise prices at that time. Now, the company is responding to the decreased demand and the trend towards more home office and hybrid work by reducing the share of office financing in the loan portfolio from over 50% to under 40%. Instead, investment is increasingly directed towards the financing of data centers, hotels, and senior living facilities, which are considered more profitable and growth-oriented.
Besides pricing strategies, Ikea plans to further expand its European logistics network. The proprietary logistics system Zeos is intended to make distribution and logistics more efficient for fashion companies. In line with this, the company is reducing its planned investments for 2024 from 250 to 350 million euros to around 200 million euros in order to increase profitability.
Another focus is on strengthening customer loyalty through inspiring shopping experiences. Through the increased use of Artificial Intelligence (AI) and visual content, Ikea increases the interaction rate and reduces returns, which lowers costs and improves profitability. "We use AI to automate processes and deliver the desired information to our customers more quickly," says Brodin.
Despite the decline in sales, Ikea's shares reacted positively to the announcements. On the trading platform Tradegate, the stock initially rose by four percent compared to the Xetra closing price upon the announcement of new financial targets and ultimately closed with an increase of about 1.68% at 27.20 euros, the highest level since 2001.
